4.10 Pricing strategies

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What is meant by price skimming?: Charging a high price when a product is first launched and then reducing it over time
Which term describes setting a price just below a round figure, such as £9.99 rather than £10?: Psychological pricing
What is meant by price penetration?: Charging a low price when a product is first launched and then increasing it over time
What is meant by competitive pricing?: Charging an amount that is in line with the amounts charged by rival businesses
With price penetration, what normally happens to the price over time?: It is gradually increased
Why might a business use price skimming when it launches a brand new product?: It expects demand to be high at launch
Which of these is a disadvantage of using price skimming?: Some customers will wait until the price is reduced
What is an advantage of using price penetration when launching a new product?: Customers are attracted by the low price and may stay loyal
A business sets its prices at the same level as its main rivals. What is an advantage of doing this?: Customers are unlikely to switch to rivals over price
Why can it be risky for a small business to charge the lowest prices in its market?: It may make low profits or a loss
Which of these is a disadvantage of psychological pricing?: Customers are becoming aware of it so it works less well
A product has reached the decline stage of its product lifecycle. Why might the business lower its price?: To try to boost sales of the product
Why can psychological pricing help a business to sell more products?: The prices appear lower than they really are
A new mobile phone network charges very low prices to attract its first customers. What is a disadvantage of this approach?: The profit on each sale is low at first
A sandwich shop charges the same prices as the other shops on its street. Why might this be a disadvantage?: It must find other ways to stand out
A business launches a new type of smart speaker at a high price. What is an advantage of using price skimming?: It creates a perception of quality
Why can a high launch price cause problems for a business using price skimming?: Rivals have room to undercut it
A business launches a new streaming service at a low price to win customers, then increases the price. Why might this cause problems?: Some customers may leave when the price rises

4.10 Pricing strategies

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